Achieving environmental flows where buyback is constrained

Abstract

Theory suggests that the development of common property increases national welfare, and consistent with this thinking Australia's Murray-Darling Basin (MDB) Plan uses a common property approach to recover environmental water rights in the national interest. Two water recovery instruments are used: purchasing water rights (buyback) from farmers, and saving water by subsidising irrigator adoption of technically efficient technology. A moratorium on buyback has focused environmental recovery on subsidised technically efficient technology adoption. Economists argue that national welfare is maximised via buyback and highlight the limitations of efficiency savings to recover sufficient environmental water. A risk is that water recovery targets may be reduced in future, limiting welfare gains from water reform. This article evaluates possible welfare trade-offs surrounding environmental water recovery outcomes where arbitrary limits on buyback are imposed. Results suggest that, on average, strategies which attempt to obtain >1500 gigalitres (GL) of water from onfarm efficiency investments will only provide sufficient resources to meet environmental objectives in very wet states of nature. We conclude that reliance on technically efficient irrigation infrastructure is less economically efficient relative to water buyback. Importantly, the transformation of MDB irrigation will significantly constrain irrigators' future capacity to adapt to climate change.

The Fifth Stage in Water Management: Policy Lessons for Water Governance

“…Long‐run supply will remain inelastic as no new large‐scale storages are built. However, a significant proportion of relatively small‐scale water infrastructure will be new, subsidized, and more expensive to operate (Adamson & Loch, 2018). Demand will likely increase, particularly during drought events, and total water use may increase under changes to land use or irrigation practices (Ward & Pulido‐Velazquez, 2008).…”

“…Consequently, the policy discussion surrounding water recovery in the MDB has turned toxic, with farmers arguably oversupported by current policy, and scientists and economists arguing for a return to allocative efficiency programs such as buyback (e.g., Adamson & Loch, 2018). In the MDB case study there was a brief period when both levers were in operation (~2009–2012), which by contrast with current debate appeared quite calm.…”

“…While further assessment is needed to fully test these claims—for example using qualitative comparative assessment techniques—we would agree with Turton's assessment in the case of Australia's water reforms. An imbalance in these levers would suggest ultimate slippage in contraction gains, where one program may in fact cannibalize the successes of the other (Adamson & Loch, 2018). Ultimately, any fifth‐stage of reforms must be capable of adapting to (i) on‐going uncertainty associated with climate change impacts on future water reliability; (ii) any transaction costs associated with adaptation; (iii) social consultation to reflect dynamic change; and (iv) the relevance of minimum ecological base flows in river systems.…”

“…Alongside this, economists have raised concerns that the most cost-effective pathway to water recovery (buyback from willing sellers) has been underutilized and as a consequence, and the recovered water has come at a much greater cost to taxpayers than necessary (Loch et al, 2014). Consequently, the policy discussion surrounding water recovery in the MDB has turned toxic, with farmers arguably oversupported by current policy, and scientists and economists arguing for a return to allocative efficiency programs such as buyback (e.g., Adamson & Loch, 2018). In the MDB case study there was a brief period when both levers were in operation (~2009-2012), which by contrast with current debate appeared quite calm.…”

Markets, mis‐direction and motives: A factual analysis of hoarding and speculation in southern Murray–Darling Basin water markets

“…Ultimately, it should be unsurprising that water prices have increased over time in the sMDB. Randall (1981) predicted such outcomes given maturing water development stages, while more recent reallocation (contraction) of rights to environmental users has reduced total consumptive supply which basic economics tells us should result in price shifts (Adamson and Loch, 2018). As we head further into a fifth stage of water development (i.e.…”